STATE OF THE NATION

Fiscal Year 2018 1 st Quarter Highlights

Q1 was a solid start to the year coming in nearly 14% ahead of plan, as a group. This was clearly due to outperformance by some operating companies versus others as highlighted above.

Some performance highlights:

Petron

The story remains the same: accelerating sales of specialty manufacturing for outside parties and the continued growth in white labelling business of high margin proprietary products. The engine that keeps on giving. The revamped global mining franchise is starting to deliver as well.

OPM was 27%.

West Penetone

Revenues exceeded plan by 13% which helps explain the beat in OPM. Senior hires in revenue producing roles were budgeted. And depressed margins in the 1H of the year are anticipated. Hence the 15% hurdle was not achieved yet. Nor unexpected.

OPM was 7%.

Penetone

Revenue was light for the quarter by 11%. With notable weakness in P&P. This can be explained by order pattern weakness which is expected to reverse and self-correct later in the year.

OPM was negative.

West Ventures

Investment gains and cash-on-cash were in line with budget.

Return on Invested Capital: 11% pre-tax

Looking Forward

The minimum 15% OPM, by business unit, is still the focus. But not yet achieved. Having said that, there is a lot of reason to be optimistic to this end.

At Petron, a new record monthly revenue and operating profit was achieved in March. Exceeding past records by 21% and 2.2% respectively. Upside is being seen across the entire franchise.

Penetone, in March, beat plan by nearly 2x despite revenues falling short. OPM was 7%. A combination of reformulating high volume product lines coupled with new pricing has proven to be a game changer. It is just the beginning of a major turnaround for the company.

West Ventures had a solid March deploying more capital at attractive rates. With one investment maturing in early April far exceeding targets.

West Penetone is suffering from sluggish order patterns, especially in the industrial west. Though 1 month does not make a year, focus needs to be on increasing top line growth. There are a number of potentially large new accounts in development within the Food/Barn segment. And industrial orders should resume normal levels going into the summer.

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Road map to loyal customer

By Dean Keuhl

I’ve been with Petron for 18 months now; previously 23 years at FALK/Rexnord. Products I sold at FALK/Rexnord were specialty differentiated products that had many technical aspects; a majority with long leadtimes. Petron products are indeed specialty lubricants, but realistically I’m selling more of a commodity now where lead-times are short and service and quick response is key. Though a different aspect in selling; one major thing did not change. “Understanding the customer leads to loyal customers”. When customers call us what do they want? Customers call for one reason, they want HELP. Help, I need an answer / Help I need information on my order / Help I have questions / Help I want to place an order / Help we’re almost out of product / Help something’s wrong with my spray system.

Successful organizations realize that everyone in the company has a part in sales and a part in creating loyal customers. The only way to have loyal customers is to achieve all the expectations that the customer has, and everyone has a role in that. One person alone can’t fulfill all the requirements it takes to create a loyal customer; there’s just too many moving pieces and expectations to cover.

Customers want Value – they want to know what they’re buying is a great product at a fair price, they want to understand how they will profit from the use of our products & to know that they will get support and service. Part of that support and service is outstanding Communication – no surprises or misunderstandings; let them know what they need to know when they need to know it. With the communication to the customer we need to have a Positive Attitude (it can be tough when they don’t) by being happy, eager, & willing it shows the customer that we’re prepared and confident to meet their needs. By consistently meeting the customers’ needs we are providing the Reliability they desire. We set ourselves apart here; as many of their vendors fall short on this expectation. Reliability leads to Assurance and Reassurance; deliver when you promised and have total product and system knowledge to assist them with their job. The assurance and reassurance is enhanced by having Empathy. A customer wants empathy when something goes wrong in addition to understanding the issues. Something we may feel is basic and simple to correct may not seem that way to them. The professionalism shown with empathy creates the Tangibility aspect. The customer looks for tangibility of the message, quality of product & performance combined with a professional image. Finally Exceptional Service as the norm is a must! Our goal should be that each customer uses Petron as their vendor benchmark when it comes to service, placing orders, OTD, quality etc.

Certain customers can be very tough to make loyal; but they too have the same expectations that I’ve noted. They may be over bearing, demanding, cheap, past due, wolf crying, disloyal, and lying; but we get even more satisfaction as we turn them into a Loyal Petron Customer.

Military gets off to a strong start

By Jim Brooks

Sales for the Military and Aerospace markets are starting strong in 2018.

We continue building off the successful results achieved in 2017. Sales through Q1 were ahead of plan and last year to date.

Our balanced sales approach is working well. Customers using our products include all branches of the military at depot and active level bases. Military contractors performing aircraft maintenance and government buying agencies are included in the customer mix. Lateral selling to certain contractors is paying dividends this year. Contractors express appreciation for our competitive pricing, customer service and product performance. These features benefit contractors in terms of a reduction in man hours involved with maintenance which translates into increased profitability within the scope of their contracts.

Distributors are also active customers selling to the US military and foreign militaries. OEM’s are included in our Aerospace customer base.

Chad Tennant has done a great job so far this year working with his active military customers and is also developing a network of distributors which focus on foreign militaries and general aviation.

Pete Boutsikaris provides important service to key military accounts in his territory including an Army Depot which is one of our larger customers.

Efforts are currently and will continue being made to reduce costs and improve profitability. We are sourcing alternate suppliers of qualified products when applicable to support this effort. Expectations will continue being high for positive sales results in 2018 as we focus on our existing customers and strategically search for new opportunities through product qualifications and approvals.

New walking cam lube for draglines

By Chuck Strait

Petron has successfully developed and tested a new product offering used to lubricate the Monighan Walking Cam mechanism for mid-size and smaller draglines. For those of you who are not familiar with mid-sized draglines, here is some basic information:

Draglines are the largest piece of equipment located on a mine site.

A mid-size dragline can weigh upwards of 8 million pounds.

Mid-size draglines can have a boom that is 345 feet long.

Draglines of this size can swing a bucket that can hold 80 Cubic Yards of material.

This size dragline is powered by a direct connection to the high-voltage grid at voltages up to 22 kV. A typical dragline, can use up to 6 megawatts during normal digging operations, which is the equivalent of over 5,000 homes.

Petron Open Gear Lubricants such as the Petrotac EP Premium 30B have performed exceptionally well on the large Hoist and Drag open gearing used in draglines, but our previous walking cam lubricant had average at best performance. This fact greatly reduced our chances to land large dragline lubricant contracts, until now; the new Petron Monighan Walking Cam lube will set the new standard for performance at a competitive price. Early indications show that it outperforms the competition in head to head trials and will over time, provide better equipment life. The initial trial phase was a measurement of how many steps a dragline can take without lubricant replenishment. The industry average is to lubricate every step. The best competitor walking cam lubricants would go 2-3 steps before the dragline would start to shake and shutter when trying to step. This shuttering is indicative that the lubricant is no longer keeping the walking mechanism moving parts separated from direct contact. The Petron Walking Cam lubricant consistently went 4-5 steps without any noticeable thinning of the lubricant film or adhesiveness of the cam and the walking shoe. With this new product offering Petron has once again demonstrated the ability to provide exceptional lubricants at a competitive price in an ever-changing mining market.

Another aspect of decontamination

By Greg Cebuliak

Another aspect of industrial decontamination, not discussed in previous articles, is the removal of solid contaminants, such as iron sulfide scale, that present physical hazards. Iron sulfide scale is a form of scale deposition that is often found in refinery process and storage equipment. Iron and sulfur are the elements found most frequently in these deposits. And when the stoichiometry between these two elements is within a specific ratio, these deposits can oxidize rapidly upon exposure to air. When completely dry, these deposits will auto-ignite when exposed to air even at ambient temperatures. This ignition source can lead to fire or explosion hazards when sufficient hydrocarbon fouling, capable of igniting, is present.

The initial process for removing these deposits typically requires a thorough flush or circulation of degreaser. As iron sulfide scale is typically oil-wetted, this stage removes the bulk of the hydrocarbon fouling present and “de-oils” the scale. This process is used to allow the second stage remediation chemistries appropriate surface exposure to effectively remove the scale. The initial stage is necessary as the second stage chemistries are typically aqueous and have no capacity for hydrocarbon emulsification or dissolution.

One historical technique used in the second stage remediation is acid dissolution or acid washing. As iron sulfide scale is inorganic, this technique removes the bulk of the deposition by direct oxidation converting the elemental components back to the oxide and gaseous form respectively. The main difficulty with this technique is the removal of the gas, hydrogen sulfide or H2S, as it forms during the dissolution of the scale. Controlling and removing this gas is vital as the evolution of hydrogen sulfide can be so rapid that controlling the chemical cleaning procedure can become impossible creating further hazards and risks to life and health. Of course that issue being just another requirement in the process of decontamination.